The primary goal of this report is to enable a better understanding
of organic agriculture in Asia and to clarify how organics can serve or
hinder small farmers and rural communities -- especially poor ones. The
Office of Evaluation of the International Fund for Agricultural Development
undertook this evaluation to determine the role of organics in development
programs and under what circumstances they should be integrated into its
future poverty reduction strategies.

Organic produce is a fast-growing USD 27 billion segment of the food
industry and is increasingly drawing the attention of farmers, governments
and development agencies. Organic farming as a systematized and certifiable
approach to agriculture is a relatively new phenomenon. It is no surprise
that its adoption faces some challenges among both farmers and the public
sector. Policymakers tend to be polarized in their views of organic farming;
they see it either as a very lucrative modern niche or as a traditional
and perhaps backward approach used by the poorest farmers. This interesting
dichotomy reflects the somewhat different experiences and approaches taken
in different countries.

This study evaluates organic initiatives that are diverse in terms
of: agro-ecological zones, product types, institutional structures, geographic
areas and market orientation. Taking a market-oriented focus, the document
also addresses key investment issues and the organizational forms of organic
agriculture such as adoption of standards, certification, civil organizations,
value-chains and marketing channels. It draws primarily from the work
of nine researchers on 14 case studies in China and India, as well as
reviews of the organic sector in several other countries and more than
100 related studies and documents. Some anecdotal evidence is included
when it is consistently reported and credible  this is necessary
due to the lack of baseline studies and useful measurements in many small
farmer projects. India and China are the dominant focus countries since
these two together host more than half of the worlds farming households.
The methodology and output were reviewed by an international team, organized
in the evaluations Core Learning Partnership. The final evaluation
was critically reviewed by a five-member Scientific Committee and an International
Advisory Panel (see Acknowledgments for details).

For the purposes of this evaluation, clear distinctions are made
between the definitions of different farming methods. Briefly, Organic
Farming is a certifiable farm management system (with controls and traceability)
that is in harmony with the local environment using land husbandry techniques
such as soil-conservation measures, crop rotation and the application
of agronomic, biological and manual methods instead of synthetic inputs.
Traditional Farming is often subsistence oriented using few or
no purchased inputs. Conventional or Intensive Farming utilizes
Green revolution methods designed to maximize profit, often by extracting
maximum output using external purchased inputs, especially mineral fertilizers
and synthetic agro-chemicals and irrigation to support production.

Organic context

In many countries, governments have initially adopted a position
of benign neglect toward what is typically perceived as a marginal agricultural
segment. However, estimates for India suggest that most of its farming
community relies on traditional or organic methods. China recognized the
economic and ecological benefits of organic agriculture at the early stages
and its local and provincial governments invested in a number of successful
export-oriented enterprises.

In many parts of Asia, conventional farming approaches have made
considerable inroads using potent fertilizers, pesticides, and herbicides
along with new hybrid varietals and irrigation. For many small farmers,
especially those in sub-optimal or more remote areas, such conventional
methods are less relevant and traditional farming methods have changed
little from the centuries-old practices of their forebears. Organics may
be especially relevant for them. Organic agriculture has seen two primary
avenues of expansion: among the smaller farmers - often poor - who either
chose to eschew or could not afford Green revolution approaches; and among
the commercially oriented farmers, who perceived new market opportunities
in certified organic products. Consequently, projects and policies designed
to support organic or eco-friendly agriculture must respond to these distinctions.

Overview of markets and marketing

Global organic sales have achieved double-digit annual growth rates
for more than a decade. The domestic organic market in China is valued
at approximately USD 150 million retail; less than 1% of the total market.
The value of exports has expanded from less than USD 1 million in the
mid-1990s to about USD 142 million in 2003. Estimates for 2004 approach
USD 200 million. In India organic development has until very recently
focused predominantly on farmer welfare and localized benefits rather
than market development. A number of organic products are sold informally
but the domestic market for certified organics is no more than a couple
million US dollars. India's 2003 organic exports are officially estimated
at USD 15.5 million. Chinas certified Green Foods are one of the
most successful eco-labeling programs in the world, because of their rate
of growth in the past decade, their similarities to organics, and their
sheer volume, and are well worth understanding since they set a precedent
for organics. Annual Green Food sales should reach close to USD 12 billion
in 2004, nearly matching the size of the worlds largest organic
sector: the USA.

The evaluation estimates that China has 600 000 - 700 000 hectares
of certified organic land (all uses) in 2004 and 1 100 companies and farms
are being certified. India's certified organic farming area has recently
surged to 2.5 million ha (all uses) and 332 certifications have been issued
in the past year. For both, these figures are coupled with a very dramatic
rate of growth.

Characteristics of organic production and markets

The switch to organic farming from a traditional or rustic form of
cultivation tends to increase labour costs but has positive consequences
in terms of yields and profitability. For traditional producers, organic
systems provide better incomes. When switching from intensive forms of
agriculture to organic farming, labour costs are higher, input costs are
lower, yields may be reduced and overall income is higher. First-year
losses in yields are often considerable. By the third year, yields have
typically stabilized. Although some stabilize at a yield level lower than
before, some of the more sophisticated farmers are able to actually improve
yields with organic methods. Measuring total farm yields is more appropriate
than measuring single crops, since some diversification away from dependence
on a single cash crop is a characteristic of organic farming. Organic
systems, primarily because of price premiums, are generally more profitable
than conventional ones and more than make up for yields or productivity
losses that may occur during transition.

Greater income is the reason most farmers give for converting to
organic agriculture, followed by health, ideological and environmental
reasons. First movers tend to be farmers using rustic or traditional methods
of cultivation and farmers with access to certification and marketing.

Domestic market channels for organic products are limited in China,
and even more scarce in India. Many farmers are primarily oriented toward
export sales. However, a surprising number  while not eschewing
the market  are primarily focused on the intrinsic local benefits
of organic production. In such cases, lower production costs, improved
soils, fewer toxic chemicals, self-reliance in inputs and harmony with
nature were cited as the most important reasons for converting to organic
farming.

Many market-oriented organic farmers have some support systems for
certification and marketing to induce their adoption of strict organic
practices. The most difficult hurdle for small farmers to surmount is
the lack of adequate technical advice (extension) on production technology.
The second most important requirement is market information or promotion.
Its importance reflects the typically modest success of the firms or NGOs
that undertake marketing and sales. Financing for transition or expansion
was ranked only third in importance, followed by lower cost of certification
and then assistance with quality management and internal control systems.

It is important to note that the markets for quality safe foods
for which organic products are particularly well-suited 
are large and are likely to continue growing strongly. This demand makes
safety and quality increasing prerequisites for entry to the market but,
as the Green Food experience in China has shown, price premiums can be
limited. While organic premiums are very high in a few markets, the global
experience is somewhat less promising as more and larger producers enter
this lucrative niche. Established organic commodities like rice, sugar
and coffee have already seen considerable reductions in price premiums.
Promises to farmers about enormous market profits may prove to be misleading,
especially after the two-three years it typically takes to be certified.

While this absence of synthetic agrochemicals is one component of
organic farming, there are also significant other requirements, such as
meeting a number of production and environmental standards and keeping
adequate records, that must be satisfied in order to be certified as organic.
For farmers, developing and managing their own Internal Control Systems
is a way to both minimize compliance costs and improve their associations
responsibility and management skills and so become better prepared to
manage the plethora of other standards that are increasingly mandated
for trade. Certification is costly for small farmers and often not in
the name or control of the farmers that are certified. This limits their
market options to those dictated by the certificate ownerusually
a firm and possibly diminishes their interest and commitment to
organic farming.

There is generally adequate availability of organic inputs and most
organic projects did not suffer from negative plant health or soil fertility
issues. Instead, many noted improved soil characteristics. Organic systems
work particularly well with livestock components, especially in less fertile
areas. Livestock can facilitate fertilization, provide power and fuel.
They are also an excellent source of food security and income diversification.

Given that labour requirements are generally higher than in conventional
systems, organic agriculture can prove particularly effective in bringing
redistribution of resources in areas where the labour force is underemployed.
This can help contribute to rural stability, especially where labour is
abundant and migration occurs.

Impacts of organic agriculture and the pros and cons of adoption

Organics have not cornered the market on good agricultural practices.
Other farming systems such as Integrated Pest Management and certification
systems such as EUREP-GAP (Euro-Retailer Produce Working Group/Good Agricultural
Practices) share common processes with organics. Organic agriculture,
as a systemic development package, fits into the approach of new
growth economics, that stresses knowledge and innovation as factors
in production combined with new institutional models (e.g. agro-industry
clusters, forward-backward linkages, etc.). Organic farming systems embody
many elements of sustainability that make them suitable tools to reduce
poverty:

knowledge-intensive rather than capital and resource-intensive; coupling
traditional knowledge with modern methods such as bio-controls and efficient
nutrient management;

integration of traditional knowledge, joint problem solving, and
farmer to farmer exchange can improve community relations and lead to
greater involvement and commitment of producers.

For small and poor farmers, organic farming can be an effective risk
management tool that reduces their input costs, diversifies their production
and improves local food security. For rural communities it can provide
improved incomes, better resource management and more labour opportunities.
For agricultural competitiveness, it meets the increasing demands for
improved food safety methods and traceability that are becoming the hallmark
of high-value agricultural trade. For governments, organics reduce the
possibility of environmental contamination, reduce the use of chemical
inputs (often imported) and minimize the public health costs of pesticide
poisoning. For nearly everyone involved in its production, processing
and trade, organic agriculture simply earns more money.

Today, the shifting regulatory, business and consumer environments
are inducing fundamental changes in the global trade regime, that increase
the demand for quality and safety standards. This in turn has profound
implications especially for small and medium producers. Since organics
intrinsically meet many emerging trade standards, organic methods can
actually help producers to overcome barriers at entry that such standards
represent.

Workable solutions: public sector roles in each country

In many countries, agricultural policies have not favoured organic
agriculture. However this is changing, as the fiscal and risk-reduction
benefits are increasingly realized at the government level. Both China
and India have a considerable amount of organic or ecologically friendly
agriculture and like many countries are working to adopt appropriate organic
standards and policies. However, both are somewhat distinct in their development
and approaches.

Today, much of the market-oriented organic farming is an arrangement
between trading companies and farmers, in which the companies are clearly
dominant. This model is particularly pervasive in the developed coastal
regions of China and has provided useful opportunities for farmers in
these areas, where agriculture is under intense pressure from industrialization
and urban expansion. The same corporate model now also prevails in poorer
regions as well, but puts farmers at a disadvantage, since most of them
labour with weak farmer organizations, few production scale efficiencies
and limited market orientation; consequently, they receive only a small
part of the benefits of organic production. Providing opportunities for
the strengthening of farmer associations and NGOs could help remedy some
of these shortcomings.

The market aspect is most often a primary factor for farmers. Today's
development professionals (government, NGOs, international agencies) are
often not adequately trained to help farmers develop a strong market orientation
and therefore it must be sought elsewhere. The most efficient way to do
this is by inviting the private sector to provide marketing services.
However, some caution is warranted since at least some of a firm's goals,
such as maximizing profits, may be in opposition to the best interest
of farmers. The public sector, including government and NGOs, can support
farmer organizations at the outset and help ensure equity in their partnership
with private companies as well as foster adequate contract-farming laws.
Ultimately, a market-oriented value chain can be developed that takes
full advantage of each partners strengths in order to fortify competitiveness,
while also ensuring a fair share for producers. India's NGO sector and
some of its state governments have already begun taking this approach
to strengthen their farmers.

The quality of certification systems is very uneven and, in both
countries, the domestic verification and certification systems that could
be the most accessible to farmers, often lack the necessary checks and
balances to ensure credibility. In both India and China, since landholdings
can be very small, farmers must organize in order to apply for group certification
that can significantly reduce their individual costs and enable them by
owning their certification rather than having a firm own it the
independence to negotiate their own terms of sale.

India, through its NGOs and state governments, has now begun to
disseminate organic information more broadly and directly to farmers,
while Chinas dissemination to its farmers is still in the nascent
stages, which may hinder adoption of organic agriculture. On the other
hand, China's notable development of Green Food may provide a basis for
domestic organic development, whereas India's domestic markets are very
marginal. Domestic market development can be an important factor in order
to stimulate farmers to improve their practices and adopt organic methods
in both countries. Improved consumer education efforts in regard to standards
and what they represent could stimulate this considerably. Consumer confidence
in both nations is underdeveloped and, particularly in some Chinese cases,
consumers doubt label claims.

Public investment in organic agriculture is very limited and in
order to advance, it will be important to overcome the systemic biases
in public expenditures that favour conventional agricultural systems.
China lacks significant research in organic technology and organic extension
services to reach farmers. India has already begun to invest in organic
research, but its extension services also have little preparation or experience
in modern organic methods. Since radical changes in extension services
are difficult, providing farmer-friendly databases, based on a consortium
of national and international learning institutions - including those
that deliver market knowledge - could prove very cost-effective. India's
subsidies to the fertilizer industry serve as an example of disincentives
that may limit the adoption of organic agriculture and make them less
competitive.

Generally speaking, there is no significant evidence that organic
methods would be deleterious to small farmers. In fact, most of the cases
clearly noted a number of benefits from which it is reasonable to conclude
that the promotion of organic agriculture among small farmers can contribute
to poverty alleviation and is well warranted.

In the context of development, the role of organic agriculture cannot
be fairly assessed in the narrow economic terms of market premiums. Its
value does not rest merely in the fact that it can provide higher incomes,
but in that it can potentially contribute to long-term resilience and
stability, particularly in terms of resource conservation, crop diversification,
food security and a number of positive environmental externalities.

Further growth and meeting the demands for certification, quality
and consistency of increasingly mainstream distribution channels, like
supermarkets, will be difficult for most producers and will require the
organization of small farmers and a combination of public and private
support. Local farmer associations can facilitate the
exchange of knowledge, support farmers through the early conversion processes,
improve production and post-harvest controls, achieve economies of scale,
improve farmers' bargaining position and play an important role in marketing
of organic products. For small farmers, external private firms or NGOs
can fill some of the gaps but may not be an ideal permanent substitute
for farmer associations.

Poorer small farmers seem to experience a positive transition and
outcomes when converting to organic farming. For many small farmers practicing
rustic or traditional methods of agriculture, transition to organic results
in an increase in both yields and overall incomes. The implications for
converting conventional farmers that practice intensive cultivation methods
would necessarily be different and more dependent on careful analysis
of the probable outcomes. Transitional periods can mean uncertainties
and even a decline in yields for those farmers that employ intensive agricultural
methods and are dependent on external inputs, because the benefits of
organics are not usually immediate in such cases. In most cases, overall
farm incomes  though not always yields  soon recover. In
the long run, organic methods can be more cost-effective and even more
profitable, but only if properly applied. The transition process and the
time it takes are a barrier to many conventional farmers, who therefore
require various types of conversion support.

Organic production requirements, the sometimes lengthy conversion
process and the realities of sometimes shallow organic markets can surprise
farmers and development professionals alike. Those farmers that adopt
a holistic understanding of organics and are focused
on local benefits such as improved soils, fewer toxic chemicals and self-reliance
in inputs, rather than just on the premium price for the crop, are likely
to better withstand setbacks, reduced premiums and difficult periods,
especially during the conversion stages. It is risky for a project to
work with farmers that convert only because of the promise of higher prices,
since such price premiums may not be readily available. Without adequate
motivation and recognizable rewards for the positive environmental externalities
they generate, farmers are more likely to only participate in a superficial
manner, not adhere to the standards and receive only limited benefits.

Organic farming is primarily knowledge-intensive, whereas conventional
farming is more chemical- and capital-intensive; organics can therefore
be an advantage for poorer farmers. Accordingly, it is difficult to establish
a one-size-fits-all approach, since conditions will vary in different
zones. Organic projects require that time be built into the process for
farmers to test and learn new technology and methods. Knowledgeable extension
services are critical. Local know-how, especially from experienced farmers
and knowledgeable elders, can smooth the transition and reduce risks.
It is also important to provide farmers good access to sources of knowledge
about the application of organic methods to their crops and agro-ecological
conditions. Nevertheless, holistic methods don't often provide a quick
fix and require a longer-term commitment. Therefore,
governments and local institutions such as NGOs need to be committed to
supporting a multi-year process. Such a commitment might require: acquisition
of organic production technology and training, especially for extension
service agents; preparation for certification and initially covering its
costs; and very limited subsidies to cover possible reduced income during
the transition period.

Perhaps the single most important factor for successful organic
adoption is the availability of a reliable institutional support
system that can initially facilitate the access to the many components
that farmers find difficult to reach. These include technology, initial
financing for certification and input production, and marketing. Capacity-building
at the farmer level (local farmers associations, local training and advisory
services) should be a central aspect of any strategy aimed at using organic
agriculture as a tool for poverty alleviation.

The process of certification can be difficult and
costly, but in most of the cases reviewed, NGOs and partnering firms facilitated
the process and even offset the initial costs for farmers. Nevertheless,
improving access to certification by keeping costs low and facilitating
Internal Control Systems will enable small farmer groups to have their
own certification and thereby greatly improve their market position.

Development policies must recognize the critical need to integrate
professional marketing support. Helping farmers to first
assess their market orientation and then access targeted organic markets
requires business and marketing skills that many NGOs and farmer associations
often lack. It is not necessary to turn a farmer into a trader, but an
apex body or a network of organizations can be fortified with outside
support and training in order to take advantage of scale economies, improve
bargaining and significantly reduce transaction costs. A private sector
partner can also fulfill this role, provided that the arrangement secures
a measure of equity for participating farmers. Any strategy to promote
organic agriculture among the poor ought to also consider crop choices.
Local varietal adaptability is important and so is the exercise of caution
regarding commodities such as coffee or tea, whose international markets
are inherently volatile.

On the surface, it appears that conversion can be an easier process
where agro-ecological conditions are favourable for farming
and environments are more pristine. However, some of the more dramatic
examples of success have occurred under much more difficult conditions,
such as semi-arid or degraded landscapes. In such cases, because organic
agriculture builds soil quality and is generally less water intensive
than conventional agriculture, it can be particularly productive where
conventional farming would be impractical or too costly.

Key recommendations for IFAD and its partners

It is useful for IFAD initiatives to foster and encourage farmers
associations as a central aspect of any strategy aimed at using organic
agriculture as a tool for poverty alleviation in rural areas. These can
be critical to ensure participation and equity for small farmers and can
take up responsibility for critical aspects of the supply chain such as
marketing, certification, and integration of a good internal quality management
system to help ensure quality, traceability and organic compliance.

IFAD can play a useful role by fostering reliable institutional
support systems that can initially help provide the many components that
farmers find difficult to access. These include capacity building and
the acquisition of adequate technology and training, marketing, and initial
financing for certification and localized input production.

In order to take advantage of scale economies (marketing, production,
certification, etc) and significantly reduce transaction costs, IFAD can
help to organize apex bodies or a network of organizations that can then
be fortified with professional support and training. IFAD and partner
agencies can play important roles to support mutually beneficial partnerships
between farmers and private firms and can even enhance market relations
by facilitating farmer groups to jointly engage in contract farming arrangements.

In order to improve the likelihood of success, IFAD and its partners
must assure that planning and implementation integrate appropriate sequencing
and pre-assessments and that any organic strategies build adequate timeat
least three-five years  into the learning process.

Negative biases in public expenditures that favour conventional
agricultural systems and discriminate against smallholders and organic
systems can be improved at the government level by assessing the research,
extension and perverse subsidies that hinder the development of organic
options. IFADs proven experience with poverty mapping systems and
farmer assessments can ensure that the investment selection criteria adequately
identify high poverty areas with smallholders and thereby reach farmers
that most need support.